Wed, 03/08/2005 - 08:00
<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />India's investment boom, which has seen headline GDP average 7 per cent in recent years, has some way to go, according to Aberdeen Asset Management.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
India has come a long way over the past decade and is now home to numerous world-class companies that are well managed, financially sound and run for shareholders.
And Aberdeen, which manages a dedicated USD 900m India fund from Singapore, says success will partly be measured in how well the government can contain a sometimes troublesome opposition and overcome the vested interests of labour unions and the bureaucracy - both of which have undermined development in the past. So far it is winning, as moves to allow foreigners into airport ownership, utilities and financials show.
However, the government is also earning plaudits for developing peace initiatives with Pakistan and trade with China, while the prime minister's visit to the White House this week confirms the increasing importance the US attaches to the country. All of this signifies a pragmatic new engagement with the outside world, with trade high on the agenda.
While foreign interest is important, it is the dynamism of Indian companies that Aberdeen sees as attractive. The recent explosion in global offshoring/outsourcing business grew from India's home-grown expertise in IT, which falling technology costs then allowed foreigners to access. This bias to services is uncommon for developing countries. 'Intellectual capital', is thought the competitive advantage of rich nations.
Of course, there are pitfalls: companies may be entrepreneurial but lack management disciplines. This had deterred some investors, which is why foreign investment in the country is still quite low compared to that in other Asian markets.
The situation suits Aberdeen. First, it means the market is less efficient, so the premium of doing your own research and visiting companies direct is all the higher. And second, there is the comfort that the market is not being propped up by latecomers looking for a quick ride.
Adrian Lim, Investment Manager at Aberdeen Asset Management commented:
"India has come a long way over the past decade or so and we continue to believe that the investment boom of the last several years still has some way to go," says Adrian Lim, Investment Manager at Aberdeen Asset Management. "Many Indians are taking advantage of falling interest rates, which have driven down the cost of debt, releasing pent up-up consumer demand for goods and services, much of that driven by housing growth. Furthermore the scope for credit expansion is enormous, even though the cycle has been running for some years fuelling domestic growth.
"This virtuous circle has led to record earnings and powered the Indian stock market to new highs. Whilst some pull-back is inevitable trying to market time entry is a dicey strategy. True valuations are no longer bargain basement, with growth expectations priced in, but the long-term fundamentals stack up.
"What sets the Indian stock market apart is the overall quality of listed companies. India is home to numerous world-class companies that are the equal of their western peers, being well-managed, financially sound and run for shareholders. Several in fact are linked to multi-nationals - subsidiaries of names like GlaxoSmithKline, ING and Honda."
Currently Aberdeen's Indian portfolios are overweight in pharma companies including Aventis and Nicholas Piramal. Limm also likes GAIL and Bharat Petroleum among utilities - where further deregulation is expected - and cites Satyam Computers and Tata Consulting among IT stocks. The portfolios have a slight bias to mid-caps, with Asian Paints and Godrej Consumer the less liquid consumer plays. Navneet is a preferred pick among media companies, a sector where foreign limits have recently been raised.
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